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Wejo Group (WEJOF)
OTHER OTC:WEJOF
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Risk Overview Q1, 2023
Risk Distribution
47% Finance & Corporate
18% Tech & Innovation
12% Legal & Regulatory
10% Macro & Political
8% Ability to Sell
5% Production
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Wejo Group Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q1, 2023
Main Risk Category
Finance & Corporate
With 28 Risks
Finance & Corporate
With 28 Risks
Number of Disclosed Risks
60
+2
From last reportS&P 500 Average: 31
60
+2
From last reportS&P 500 Average: 31
Recent Changes
2Risks added
0Risks removed
3Risks changed
Since Mar 2023
2Risks added
0Risks removed
3Risks changed
Since Mar 2023
Number of Risk Changed
3
+3
From last reportS&P 500 Average: 3
3
+3
From last reportS&P 500 Average: 3
See the risk highlights of Wejo Group in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 60
Finance & Corporate
Total Risks: 28/60 (47%)Above Sector Average
Share Price & Shareholder Rights8 | 13.3%
Share Price & Shareholder Rights - Risk 1
Our failure to regain compliance with NASDAQ Listing Rules 5450(a)(1) or 5450(b)(2)(A), or otherwise meet the other continued listing requirements of NASDAQ, in each case could result in a delisting of our securities or we may have to consider applying to transfer to The NASDAQ Capital Market.Changed
Share Price & Shareholder Rights - Risk 2
We are an "emerging growth company" ("EGC"), and the reduced disclosure requirements applicable to EGCs may make our common shares less attractive to investors.We are an "emerging growth company," as defined in the JOBS Act. For so long as we remain an EGC, we are permitted by SEC rules to (and plan to) rely on exemptions and relief from certain reporting requirements that are applicable to other SEC-registered public companies that are not EGCs. These exemptions and relief include (i) not being required to comply with the auditor attestation requirements of Section 404 of SOX, (ii) not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board ("PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, (iii) reduced disclosure obligations regarding executive compensation, and (iv) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, the information we provide shareholders will be different than the information that is available with respect to other public companies that are not EGCs. In this Annual Report on Form 10-K, we have not included, and do not plan to incorporate by reference, all of the executive compensation-related information that would be required if we were not an EGC.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are not subject to the same new or revised accounting standards as other public companies that are not EGCs. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain an EGC until the fiscal year-end following the fifth anniversary of the completion of the business combination among Virtuoso Acquisition Corp. ("Virtuoso") and Wejo Limited (the "Virtuoso Business Combination") (see Note 3 to the accompanying audited consolidated financial statements), though we may cease to be an EGC earlier under certain circumstances, including (1) if our gross revenue exceeds $1.07 billion in any fiscal year, (2) if we become a large accelerated filer, with at least $700.0 million of equity securities held by non-affiliates, or (3) if we issue more than $1.0 billion in non-convertible notes in any three-year period.
We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions and relief. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our stock price may decline and/or be more volatile.
Share Price & Shareholder Rights - Risk 3
During the pre-closing period, we are prohibited from entering into certain transactions that might otherwise be beneficial to us or our shareholders.Until the earlier of the consummation of the closing of the TKB Business Combination with TKB or termination of the TKB Business Combination Agreement, we are subject to certain limitations on the operations of our business. The limitations on our conduct of our business during this period could have the effect of delaying or preventing certain capital financing and other strategic transactions and may, in some cases, make it impossible to pursue business opportunities that are available only for a limited time.
Share Price & Shareholder Rights - Risk 4
Sale of a substantial number of our common shares in the public market could adversely affect the market price of the Company.The market price of the Company's common shares could decline as a result of substantial sales of our common shares, a large number of our common shares becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. The Company entered into various financing transactions during 2022, which have and will continue to result in the sale of a substantial number of our common shares and warrants, including the CFPI Stock Purchase Agreement, the July 2022 PIPE, the GM Securities Purchase Agreement, and the ATM Agreement. On the closing of the TKB Business Combination Agreement, Holdco is expected to issue a substantial number of common shares in exchange for the TKB common shares and the Wejo common shares. In addition, a conversion of the SCN could result in the issuance of a significant number of common shares. The sale or other issuance of a significant number of our common shares in the public market, or the perception that such sales could occur, could reduce the market price of our common shares.
Share Price & Shareholder Rights - Risk 5
The grant and future exercise of registration rights may adversely affect the market price of our common shares.Pursuant to the registration rights agreements the Company has entered into in connection with the Virtuoso and TKB Business Combinations and other issuances of equity and equity-linked debt securities, the holders of the Company's securities party to such registration rights agreements can each demand that the Company register their registrable securities under certain circumstances and certain of such holders also have piggy-back registration rights for these securities in connection with certain registrations of securities that the Company undertakes. The registration of these securities will permit the public sale of such securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common shares.
Share Price & Shareholder Rights - Risk 6
The market price of our common shares may be volatile, which could cause the value of your investment to decline.The market price of our common shares may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common shares regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to shareholders, additions or departures of key management personnel, failure to meet analysts' earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of our common shares could decrease significantly.
In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
Share Price & Shareholder Rights - Risk 7
The Company Bye-laws, as well as Bermuda law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common shares.The Company's Bye-laws, as well as Bermuda law, contain provisions that may discourage, delay or prevent a merger, amalgamation, acquisition, or other change in control that shareholders may consider favorable, including transactions in which you might otherwise receive a premium for common shares. These provisions may also prevent or frustrate attempts by our shareholders to replace or remove our management. Our corporate governance documents include provisions:
- authorizing blank check preference shares, which could be issued without shareholder approval and with voting, liquidation, dividend and other rights superior to our common shares;- providing that any action required or permitted to be taken by our shareholders must be taken at a duly called annual or special meetings of such shareholders and may not be taken by any consent in writing by such shareholders;- requiring, to the fullest extent permitted by applicable law, advance notice of shareholder proposals for business to be conducted at meetings of our shareholders and for shareholder-proposed nominations of candidates for election to our board of directors;- establishing a classified board of directors, so that not all members of our board are elected at one time, with the election of directors requiring only a plurality of votes cast;- providing that certain actions required or permitted to be taken by our shareholders, including amendments to the Company Bye-laws and certain specified corporate transactions, may be effected only with the approval of our board of directors, in addition to any other vote required by the Company Bye-laws and/or applicable law;- prohibit us from engaging in a business combination with a person who acquires at least 10% of our common shares for a period of three years from the date such person acquired such common shares unless approved by our board of directors and authorized at an annual or special meeting of shareholders by the affirmative vote of at least two-thirds of our issued and outstanding voting shares that are not owned by such person, subject to certain exceptions; and - providing that directors may be removed by shareholders only by resolution with cause upon the affirmative vote of at least two-thirds of our issued and outstanding voting shares.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for common shares. They could also deter potential acquirers of Wejo, thereby reducing the likelihood that you could receive a premium for your common shares in an acquisition.
Share Price & Shareholder Rights - Risk 8
Our shareholders may have more difficulty protecting their interests than shareholders of a U.S. corporation.The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders under legislation or judicial precedent in many U.S. jurisdictions.
Class actions and derivative actions are generally not available to shareholders under Bermuda law. However, Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in the name of a company to remedy a wrong done to a company where the act complained of is alleged to be beyond the corporate power of a company, is illegal or would result in the violation of that company's memorandum of association or Bye-laws.
Furthermore, consideration would be given by a Bermuda court to allow derivative action rights where acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of our shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys' fees incurred in connection with such action.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company's affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
Additionally, under our Bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against Indemnified Persons (as defined in our Bye-laws and which includes our directors and officers) for any action taken by Indemnified Persons in the performance of their duties, provided that such waiver shall not apply to any claims or rights of action arising out of the fraud of such Indemnified Persons or to recover any gain, personal profit or advantage to which such Indemnified Persons is not legally entitled.
Accounting & Financial Operations6 | 10.0%
Accounting & Financial Operations - Risk 1
Being that we have no current plans to pay cash dividends on our common shares, you may not receive any return on your investment unless you sell your common shares for a price greater than that which you paid for it.Accounting & Financial Operations - Risk 2
We previously identified material weaknesses in our internal control over financial reporting in fiscal years 2021 and 2022, which the Company has concluded are now remediated. If additional material weaknesses are identified in the future, or we otherwise fail to maintain effective internal controls over financial reporting, our ability to timely and accurately report our financial condition and results of operations or comply with applicable laws and regulations could be impaired, which may adversely affect investor confidence in us and, as a result, our stock price could decline.As a public company, we are required to maintain internal control over financial reporting and will be required to evaluate and determine the effectiveness of our internal control over financial reporting. Prior to the consummation of the Virtuoso Business Combination, we had been a private company with limited accounting personnel and other relevant resources with which to address our internal controls and procedures. In the course of the audit of our consolidated financial statements as of December 31, 2021, our management and our independent registered public accounting firm identified deficiencies that we concluded represented material weaknesses in our internal control over financial reporting primarily attributable to our lack of an effective internal control structure and sufficient financial reporting and accounting personnel with requisite knowledge and experience in the application of accounting principles generally accepted in the United States ("U.S. GAAP"), particularly in relation to the review of complex transactions and lack of appropriate internal controls over oversight, review and testing of the work performed by the Company's third-party specialists. As a result of these material weaknesses, management identified errors in the recording of complex financial instruments, which led to us restating our previously issued 2020 audited consolidated financial statements and the previously issued unaudited condensed consolidated financial statements for the interim periods ended March 31, 2021, June 30, 2021 and September 30, 2021. Additionally, subsequent to filing of the Form 10-Q for the quarterly period ended September 30, 2021, our management identified an error in our unaudited condensed consolidated financial statements due to a misallocation of certain personnel and related expenses between cost categories. This error resulted in a restatement of the Company's unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021, which was restated in a Form 10-Q/A filed on December 17, 2021 and a Comprehensive Annual Report on Form 10-K/A filed on April 11, 2022.
A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis. We identified material weaknesses in our internal control over financial reporting as of December 31, 2021. Specifically, these material weaknesses related to the insufficient design and implementation of processes and controls over financial reporting, and to the lack of sufficient accounting and financial reporting personnel with requisite knowledge and experience in the application of U.S. GAAP, which resulted in inadequate oversight, review, and testing of the work performed by the Company's third-party specialists. We have concluded that these material weaknesses arose because we did not have the necessary processes, systems, personnel and related internal controls in place. At the time of this Annual Report on Form 10-K, these material weaknesses have been remediated. The Company has concluded that no material weaknesses are present as a result of improvements in systems, processes, and accounting and financial reporting personnel hired during 2022.
While management has remediated the material weaknesses, there is no assurance that these remediation efforts will prevent or detect future material weaknesses. Should new material weaknesses arise or be discovered in the future, material misstatements could occur and go undetected in the Company's interim or annual consolidated financial statements and we may be required to restate our consolidated financial statements. In addition, we may experience delays in satisfying our reporting obligations or to comply with SEC rules and regulations, which could result in investigations and sanctions by regulatory authorities. Additional material weaknesses could be identified when the Company's independent registered public accounting firm is required to assess the Company's internal controls over financial reporting. If we are not able to maintain effective internal control over financial reporting, our consolidated financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business. If additional material weaknesses are identified in the future, our ability to timely and accurately report our financial condition and results of operations or comply with applicable laws and regulations could be impaired, which may adversely affect investor confidence in us and, as a result, our stock price could decline.
Accounting & Financial Operations - Risk 3
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and NASDAQ, may strain our resources, increase our costs and divert management's attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.As a public company, we are subject to the reporting requirements of the Exchange Act, and the corporate governance standards of the SOX and NASDAQ. We have a limited history operating as a public company, and these requirements may place a strain on our management, systems and resources. In addition, we have incurred, and expect to continue to incur significant legal, accounting, insurance and other expenses that we did not incur as a private company. The Exchange Act requires us to file annual, quarterly and current reports with respect to our business and financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of shareholders. SOX requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. NASDAQ requires that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting and comply with the Exchange Act and NASDAQ requirements, significant resources and management oversight are required. This may divert management's attention from other business concerns and lead to significant costs associated with compliance, which could have a material adverse effect on us and the market price of our common shares.
The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our committees or as our executive officers. Advocacy efforts by shareholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common shares, fines, sanctions and other regulatory action and potentially civil litigation.
Accounting & Financial Operations - Risk 4
We have a limited operating history and may be unable to achieve or sustain profitability or accurately predict our future results.We have been developing and selling new connected vehicle data products and services, including developing our technology, our customers, and our relationships with OEMs and other automotive vendors. Because our business and the market for our products are both new, evaluating the current business and its future performance is difficult and based upon limited historical data, a changing market, and our ability to influence the market. This applies to predictions of both revenue and expenses.
Building our business to date, we have accumulated losses. Our continued investment in new technology and services will add to our operating expenses. We cannot assure you that we will be profitable, that we will be able to sustain profitability, or of the magnitude of our profitability. Our financial performance may be adversely impacted if we fail to address the "Risk Factors" described in this section, or any other risks and challenges that we may face. If our assumptions for addressing the risks that we have identified and other business conditions are incorrect, our plans for operating the business may be impacted and we may not achieve our planned and expected results.
Accounting & Financial Operations - Risk 5
We expect our results of operations to fluctuate on a quarterly and annual basis, which could cause the share price of the Company to fluctuate or decline.Our quarterly and annual results of operations have fluctuated in the past and may vary significantly in the future. As such, historical comparisons of our operating results may not be meaningful. In particular, because some of our sales to date have been customers making limited purchases, sales in any given quarter can fluctuate based upon the timing and success of our sales efforts. Accordingly, the results of any one period should not be relied upon as an indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside of our control and may not fully reflect the underlying performance of our business, including, but not limited to, the factors discussed in this Item 1A. These fluctuations could adversely affect our ability to meet our expectations or those of securities analysts or investors. If we do not meet these expectations for any period, the value of our business and our securities could decline significantly.
Accounting & Financial Operations - Risk 6
Our audited consolidated financial statements include significant intangible assets, which could be impaired.We carry significant intangible assets on our Consolidated Balance Sheets. We had $7.3 million and $9.5 million of intangible assets as of December 31, 2022 and 2021, respectively. Pursuant to current accounting rules, we are required to assess intangibles for impairment at least annually or more frequently if impairment indicators are present. Impairment indicators include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in share price or market capitalization and negative industry or economic trends. We assessed our intangible assets for impairment for the most recent reporting date as of December 31, 2022. We did not record impairment charges in 2022 or 2021. Other intangible assets, such as internally generated development costs, are amortized across their useful economic lives. However, if impairment indicators are present, we are required to test such intangible assets for impairment.
Debt & Financing6 | 10.0%
Debt & Financing - Risk 1
We, as well as our independent registered public accounting firm, have expressed substantial doubt about our ability to continue as a going concern. In the event we are unable to raise sufficient financing to maintain operations, we may be forced into bankruptcy or to cease operations.Changed
Debt & Financing - Risk 2
Due to our receipt of certain notices under our Second Lien Notes, if we don't repay our outstanding obligations within the time provided, we may default thereunder and cross default under the Secured Convertible Notes and Secured Loan Notes as a result of which loans outstanding under any or all of these instruments may be accelerated, among other things, and our lenders may exercise remedies against the collateral securing our obligations. We may also default under such instruments if we don't make an interest payment due on the Secured Loan Notes or extend the maturity date of the Unsecured Note.Added
On May 17, 2023, the Company and the Second Lien Noteholder entered into a Third Amendment under which they agreed, in exchange for an extension fee in the amount of $100,000, that (i) the May 3 notices were not delivered as required under the Second Lien Note to declare an event of default or demand immediate payment under the Second Lien Note, (ii) the Notice of Intent was properly delivered under the Second Lien Note, (iii) the Second Lien Noteholder may provide the Company with a Demand Notice after May 19, 2023, at which time the Company will be in default under the Note and the "Demand Payment Date" and "Maturity Date" of the Second Lien Note will be the next business day after delivery of the Demand Notice.
If the Company does not raise sufficient cash to pay off its obligations under the Second Lien Note prior to the issuance by the Second Lien Noteholder of a Demand Notice, it will be in default under the Second Lien Note, which could cross default to, and cause an acceleration of the Company's obligations to GM under, the Secured Convertible Note absent a waiver from GM. If we do not obtain a waiver of any cross default and acceleration under the Secured Convertible Note, such default itself may cause a cross default under the Loan Note Instrument under which the Secured Loan Notes.
An interest payment is due on the Secured Loan Notes on May 22, 2023. Failure to make such payment would be another event of default thereunder. In addition, the Unsecured Note matures on May 22, 2023. While the Company believes that Mr. Lee will agree to extend the maturity date thereunder, failure to do so prior to the maturity date before paying off the Company's obligations would be an event of default.
A default under any or all of the Secured Notes Facilities could give such lenders the right to exercise remedies against the collateral securing our obligations thereunder. In particular, if the lenders under one or more of our Secured Notes Facilities seeks to accelerate our obligations, we currently do not have access to sufficient cash to repay such obligations, which could cause the lenders to seek to enforce their rights against the collateral securing our obligations to them. This could have a material adverse effect on our business and financial condition, including by forcing the Company to take remedial actions such as restructuring or refinancing our debt; seeking additional debt or equity capital; or reducing or delaying our business activities and strategic initiatives, selling assets, or other strategic transactions and/or measures, including obtaining relief through bankruptcy or other insolvency proceedings or ceasing operations. There can be no assurance that any such measures would be successful.
Debt & Financing - Risk 3
Our business would be adversely affected if we are unable to service our secured and unsecured debt obligations and there are limitations on our ability to raise debt or equity capital.Added
We have incurred substantial indebtedness under the Secured Notes Facilities and the Unsecured Note. Our ability to pay interest and principal when due and comply with debt covenants will depend upon, among other things, our ability to raise capital, sales and cash flow levels and other factors that affect our future financial and operating performance, including prevailing economic conditions and financial and business factors, many of which are beyond our control. Given the current economic environment, and ongoing challenges to our business, we may be unable to service our debt obligations or comply with the other terms of each of the Secured Notes Facilities and the Unsecured Note, which would among other things, result in an event of default under one or more of those instruments. Further, interest is due on the Secured Loan Notes on May 22, 2023. Failure to make such payment would be another event of default thereunder.
Our principal sources of our liquidity are funds generated from new financings, operating activities, available cash and cash equivalents, and the various bridge capital and other financing arrangements described in Note 1 to the accompanying unaudited condensed consolidated financial statements and in Item 2, Management Discussion and Analysis of this Quarterly Report on Form 10-Q. We have incurred net losses since our inception as described above, and we will continue to incur net losses in future periods, which will adversely affect our business, financial condition and ability to service our debt obligations, and due to the risks inherent in our operations, our future net losses may be greater than our past net losses. Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future financings, future performance, borrowing capacity and credit availability, which cannot at all times be assured. Cash flows from operations and other internal and external sources of liquidity will not be sufficient for our cash requirements. We will need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. There can be no assurance that any of these actions would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed would have a material adverse impact on our business and financial position.
As described above, we are in the process of working through certain notices received by the Second Lien Noteholder, which could cause a default thereunder and certain cross defaults, and acceleration of our obligations, under the Secured Convertible Note and the Secured Loan Notes if we receive a Demand Notice. If we cannot resolve the issues raised by those notices under our Secured Notes Facilities and we aren't able to raise sufficient financing to meet our debt service requirements under those or other debt instruments, we will be forced to take certain remedial actions as described above, including selling assets or obtaining relief through bankruptcy or other insolvency proceedings or ceasing operations. There can be no assurance that any such measures would be successful.
Our ability to obtain any additional financing or any refinancing of our debt, if needed at any time, depends upon many factors, including our existing level of indebtedness and restrictions in the agreements governing our indebtedness, historical business performance, financial projections, the value and sufficiency of collateral, prospects and creditworthiness, external economic conditions and general liquidity in the credit and capital markets. Any additional debt, equity or equity-linked financing may require modification of our existing debt agreements, which there is no assurance would be obtainable. Any additional financing or refinancing could also be extended only at higher costs and require us to satisfy more restrictive covenants, which could further limit or restrict our business and results of operations, or be dilutive to our stockholders. Any ability to raise equity capital or equity-linked capital would require our compliance with the rules of the Nasdaq Stock Market, which among other things limit our ability to sell equity and equity-linked securities in an amount exceeding 20% of our outstanding common shares without meeting certain pricing terms and satisfying certain integration of transaction requirements. We may not be able to satisfy such restrictions or obtaining equity or equity-linked financing on terms that satisfy these restrictions.
Finally, failing to pay our unsecured trade creditors could cause the requisite number of creditors to join together to force the Company into an involuntary bankruptcy proceeding, which would have a material adverse affect on our business and financial position.
Debt & Financing - Risk 4
We will require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all. Our ability to raise additional capital, and even to access our own cash, may become more difficult due to recent bank failures.We intend to continue to make investments to support our business and will require additional funds. In particular, we will require additional funds to develop new products and enhance our platform and existing products, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure or acquire complementary businesses, technologies, services, products and other assets. Accordingly, we will need to engage in equity or debt financings to secure additional funds.
We spent significant effort in 2022 and early 2023 identifying and optimizing alternative capital pathways to fund operations for the long-term, culminating with the Company raising over $38.0 million of bridge capital during that period through the following measures: (i) a Common Stock Purchase Agreement (the "CFPI Stock Purchase Agreement") with CF Principal Investments LLC ("CFPI"); (ii) a private placement of common shares and warrants (the "July 2022 PIPE") with various investors, which included a significant investment coming from Sompo Light Vortex, Inc. ("Sompo Light Vortex"), a wholly-owned subsidiary of Sompo Holdings, as well as current investors and certain members of the Company's Board of Directors; (iii) the forward purchase agreement (the "Forward Purchase Agreement" or the "FPA") Wejo Limited entered into with Apollo AN Credit Fund (Delaware), L.P., Apollo Atlas Master Fund, LLC, Apollo Credit Strategies Master Fund Ltd., Apollo PPF Credit Strategies, LLC, and Apollo SPAC Fund I, L.P. (collectively "Apollo"); (iv) a $10 million secured convertible note (the "SCN") with GM; (v) a $3.5 million second lien note (the "Second Lien Note") with an investor (the "Second Lien Noteholder"); and (vi) a $2 million unsecured note (the "Unsecured Notes") with the Company's Chairman, Tim Lee (see Notes 3, 6, 14, 15 and 25 to the accompanying audited consolidated financial statements). In addition, on December 22, 2022, the Company entered into that certain Open Market Sales Agreement (the "ATM Agreement"), with Jefferies LLC ("Jefferies") under which the Company may in the future direct Jefferies to sell up to $100,000,000 of the Company's common shares from time to time on the open market under the terms and conditions of the ATM Agreement (see Note 3 to the accompanying audited consolidated financial statements).
On January 10, 2023, the Company announced it entered into a business combination agreement (the "TKB Business Combination Agreement") with TKB (see Note 25 to the accompanying audited consolidated financial statements). The Company expects the TKB Business Combination to close in late second quarter of 2023, but such closing is dependent on various closing conditions and other factors. The goal of this business combination and a potential Private Investment in Public Equity ("PIPE") financing transaction is to raise enough capital through to the Company's cash flow breakeven point, which the Company anticipates will occur in mid-2024, assuming revenue and expense reduction targets are met. Because the TKB Business Combination is subject to various closing and other conditions, however, there can be no guarantee that the transaction will close. No legally binding agreements are yet in place for a PIPE financing transaction or for bridge financing to continue the Company's operations through to the closing of those transaction and therefore there can be no assurances that either of such transactions will complete.
On the closing of the TKB Business Combination, our shareholders are expected to suffer significant dilution. Further, if we raise additional funds through sales of our common shares under the ATM Agreement and other future issuances of equity or convertible debt securities through a PIPE or one or more bridge financing transactions prior to the closing of the TKB Business Combination and the PIPE, or the debt under the SCN provided under the Securities Purchase Agreement with GM ("GM Securities
Purchase Agreement" or "GM SPA") is converted to common shares, our shareholders could suffer additional significant dilution. In addition, any new equity securities we issue could have rights, preferences and privileges superior to those holders of our common shares. Our existing debt and equity financing agreements also contain restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired, and our business, results of operations and financial condition may be adversely affected.
In March 2023, the Federal Deposit Insurance Corporation (the "FDIC") took control and was appointed receiver of Silicon Valley Bank ("SVB"), and New York regulators abruptly closed Signature Bank to stymie risk in the broader financial system. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to raise additional capital may become more difficult, which could have a material adverse effect on our business and financial condition. In addition, while to date we have had no difficulty accessing our cash in an account we hold at SVB, the FDIC taking control of SVB adds uncertainty to our ability to access our existing cash on deposit at SVB (despite our deposits currently being well below the FDIC insurance limits) and to coordinate payments to and from third parties, each of which could have a material adverse effect on our business and financial condition.
Debt & Financing - Risk 5
In connection with the Forward Purchase Agreement with Apollo, we will likely receive only a portion of the Prepayment Amount, which could have a material adverse effect on our business, liquidity, financial condition and results of operations and impact our going concern.Pursuant to the Forward Purchase Agreement with Apollo, described in Note 6 to the accompanying audited consolidated financial statements, Wejo Limited and Apollo entered into an equity prepaid forward transaction in which Apollo agreed to acquire up to 7.5 million Company common shares and later sell such shares and generate proceeds for itself and the Company under the terms of the FPA. Upon the closing of the Virtuoso Business Combination, Wejo Limited paid to Apollo the product of the number of shares subject to the Forward Purchase Agreement (the "Number of Shares") and the Redemption Price (the "Prepayment Amount"). Subject to certain termination provisions, the FPA provides that on the 2-year anniversary of the closing of the Virtuoso Business Combination (the "FPA Maturity Date") of the FPA, each Apollo seller will sell the remaining number of shares purchased by such seller (up to a maximum of 7,500,000 shares across all sellers) of Virtuoso Class A common stock, which, under the FPA, ultimately became the Company's common shares after the share-for-share exchange provided under the Virtuoso Business Combination (the "FPA Shares").
On August 22, 2022, Wejo Limited entered into the FPA Amendment with Apollo to allow the Company on or after the effective date of the FPA Amendment to direct each Apollo seller to sell the 5.6 million remaining FPA Shares remaining at that time, provided that such direction is made outside of a blackout period under the Company's insider trading policy (the "Blackout Period"). The FPA Amendment also allows the Company to stop and subsequently resume, selling the remaining percentage of shares that have not yet become terminated (the "Excess Shares"), provided as well that such direction is made outside of a Blackout Period. For the year ended December 31, 2022, pursuant to the FPA, 1,662,785 common shares were sold at a weighted average price of $1.51, which generated aggregate proceeds of $2.5 million. For the year ended December 31, 2021, Apollo terminated 251,632 FPA Shares and paid $2.5 million back to the Company. As of December 31, 2022 and 2021, there were 5,585,583 and 7,248,368 total outstanding shares available, respectively.
Based on sales under the FPA to date, the Company will not be able to recoup the full Prepayment Amount. In addition, the timing of any future termination of FPA Shares by Apollo, or sales thereof by Apollo at the Company's direction, and the proceeds received by the Company as a result of such sales each may be limited by the trading volume and price of the Company's common shares, respectively. Further, the Company can direct Apollo to sell FPA shares only outside of the Blackout Period and when it is not in possession of material non-public information. These limitations on the timing and amount of proceeds the Company may receive under the FPA could have a material adverse effect on our business, liquidity, and financial condition, as well as our ability to continue as a going concern.
Debt & Financing - Risk 6
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful and could be forced into bankruptcy or liquidation.Our ability to make scheduled payments due on our debt obligations or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic, industry, and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond our control, including those discussed elsewhere in this "Risk Factors" section. We may be unable to maintain a level of cash flow sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems. The agreements governing our secured credit facilities restrict, and any agreements governing our future indebtedness may restrict, our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due.
If we cannot make payments on our debt obligations, we will be in default and all outstanding principal and interest on our debt may be declared due and payable, the lenders under our secured credit facilities could terminate their commitments to loan money, our secured lenders (including the lenders under our secured credit facilities) could foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. In addition, any event of default or declaration of acceleration under one debt instrument could result in an event of default under one or more of our other debt instruments.
Corporate Activity and Growth8 | 13.3%
Corporate Activity and Growth - Risk 1
Uncertainties about the TKB Business Combination during the pre-closing period may cause a loss of key management personnel and other key employees.Corporate Activity and Growth - Risk 2
Our management team has limited experience managing a public company.Our management team has limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage their new roles and responsibilities, our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws, and the continuous scrutiny of securities analysts and investors. These new obligations and constituents have and will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and operating results.
Corporate Activity and Growth - Risk 3
The TKB Business Combination, and uncertainty regarding the TKB Business Combination, may cause customers, suppliers or strategic partners to delay or defer decisions concerning the Company and adversely affect its ability to effectively manage its business.The TKB Business Combination will happen only if the stated conditions are met, including the relevant shareholder approvals, among other conditions. Many of the conditions are outside the Company's control, and both parties also have certain rights to terminate the TKB Business Combination Agreement. Accordingly, there may be uncertainty regarding the completion of the TKB Business Combination. This uncertainty may cause customers, suppliers, vendors, strategic partners or others that deal with the Company to delay or defer entering into contracts with the Company or making other decisions concerning the Company or could cause such customers, suppliers, vendors, strategic partners or others to seek to change or cancel existing business relationships with the Company, which could negatively affect our business. Any delay or deferral of those decisions or changes in existing agreements could have an adverse impact on our business, regardless of whether the TKB Business Combination is ultimately completed.
Corporate Activity and Growth - Risk 4
Whether or not the TKB Business Combination is completed, the announcement and pendency of the TKB Business Combination will divert significant management resources to complete the TKB Business Combination, which could have an adverse effect on our business, financial results, and/or market price.Whether or not the TKB Business Combination is completed, the announcement and pendency of the TKB Business Combination could cause disruptions in our business by directing the attention of management toward the completion of the TKB Business Combination. We have diverted significant management resources in an effort to complete the TKB Business Combination and we are subject to restrictions contained in the TKB Business Combination agreement on the conduct of our business in the period prior to the completion of the TKB Business Combination. If the TKB Business Combination is not completed, we will have incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit.
Corporate Activity and Growth - Risk 5
We have experienced growth and expect our growth to continue, and if we fail to effectively manage our growth, then our business, results of operations and financial condition could be adversely affected.We have experienced substantial growth in our business. We have grown the number of OEMs who provide us data, the amount of data that our systems process, our customer base, and the services and upcoming services we offer. This growth has placed and may continue to place significant demands on our corporate culture, operational infrastructure, and management. If we grow and make organizational changes without preserving key aspects of our culture, we could adversely impact our chances for success, to recruit and retain personnel, and effectively focus on and pursue our corporate objectives. This, in turn, could adversely affect our business, results of operations and financial condition.
In addition, continued growth will require us to improve our operational, financial and management controls, compliance programs, and reporting systems. We may discover deficiencies in these controls, programs, and systems as we grow, which in turn could adversely affect our business, results of operations, and reputation. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase. If our growth continues, it could strain our ability to maintain reliable service levels for our customers. If we fail to achieve the necessary level of efficiency in our organization as we grow, then our business, results of operations and financial condition could be adversely affected.
Corporate Activity and Growth - Risk 6
We may undertake acquisitions or divestitures, which may not be successful, and which could materially adversely affect our business, financial condition and results of operations.From time to time, we may consider acquisitions, which may not be completed or, if completed, may not be ultimately beneficial to us. We also may consider potential divestitures of businesses from time to time. We routinely evaluate potential acquisition and divestiture candidates and engage in discussions and negotiations regarding potential acquisitions and divestitures on an ongoing basis; however, even if we execute a definitive agreement, there can be no assurance that we will consummate the transaction within the anticipated closing timeframe, or at all. Moreover, there is significant competition for acquisition and expansion opportunities in our industry.
Acquisitions involve numerous risks, including (i) failing to properly identify appropriate acquisition targets and to negotiate acceptable terms; (ii) incurring the time and expense associated with identifying and evaluating potential acquisition targets and negotiating potential transactions; (iii) diverting management's attention from the operation of our existing business; (iv) using inaccurate estimates and judgments to evaluate credit, operations, funding, liquidity, business, management and market risks with respect to the acquisition target or assets; (v) litigation relating to an acquisition, particularly in the context of a publicly held acquisition target, that could require us to incur significant expenses, result in or delay or enjoin the transaction; (vi) failing to properly identify an acquisition target's significant problems, liabilities or risks; (vii) not receiving required regulatory approvals on the terms expected or such approvals being delayed or restrictively conditional; and (viii) failing to obtain financing on favorable terms, or at all. In addition, in connection with any acquisitions, we must comply with various antitrust requirements, and it is possible that perceived or actual violations of these requirements could give rise to litigation or regulatory enforcement action or result in us not receiving the necessary approvals to complete a desired acquisition.
Furthermore, even if we complete an acquisition, the anticipated benefits from such acquisition may not be achieved unless the operations of the acquired business, platform or technology are integrated in an efficient, cost-effective and timely manner. The integration of any acquisition includes numerous risks, including an acquired business not performing to our expectations, or not integrating it appropriately and failing to realize anticipated synergies and cost savings as a result, and difficulties, inefficiencies or cost overruns in integrating and assimilating the organizational cultures, operations, technologies, data, products and services of the acquired business with ours. The integration of any acquisition will require substantial attention from management and operating personnel to ensure that the acquisition does not disrupt any existing operations or affect our reputation or our clients' opinions and perceptions of our platforms and solutions. We may spend time and resources on acquisitions that do not ultimately increase our profitability or that cause loss of, or harm to, relationships with key employees, clients, third-party providers or other business partners.
Divestitures also involve numerous risks, including: (i) failing to properly identify appropriate assets or businesses for divestiture and buyers; (ii) inability to negotiate favorable terms for the divestiture of such assets or businesses; (iii) incurring the time and expense associated with identifying and evaluating potential divestitures and negotiating potential transactions; (iv) management's attention being diverted from the operation of our existing business, including to provide on-going services to the divested business; (v) encountering difficulties in the separation of operations, platforms, solutions or personnel; (vi) retaining future liabilities as a result of contractual indemnity obligations; and (vii) loss of, or damage to our relationships with, any of our key employees, clients, third-party providers or other business partners.
We cannot readily predict the timing or size of any future acquisition or divestiture, and there can be no assurance that we will realize any anticipated benefits from any such acquisition or divestiture. If we do not realize any such anticipated benefits, our business, financial condition and results of operations could be materially adversely affected.
Corporate Activity and Growth - Risk 7
The consummation of the TKB Business Combination is contingent upon the satisfaction of a number of conditions, including certain conditions that are outside of our control. As a result, one or more conditions to closing of the TKB Business Combination may not be satisfied and the TKB Business Combination may not be completed.Changed
The consummation of the TKB Business Combination is subject to risks and uncertainties, including, but not limited to, the risks that the conditions to the TKB Business Combination are not satisfied, or if possible, waived, including, among others, (i) approval of the transaction by TKB's shareholders and Wejo's shareholders, (ii) approval of an extension of the time to consummate the transaction by TKB's shareholders (which was approved on January 27, 2023 through to the June 29, 2023 TKB Consummation Deadline), (iii) absence of any adverse law or order promulgated, entered, enforced, enacted or issued by any governmental entity, that prohibits the consummation of the TKB Business Combination or the other transactions contemplated by the TKB Business Combination Agreement, (iv) the newly issued Holdco common shares and warrants of Wejo and TKB assumed by Holdco under the TKB Business Combination Agreement being approved for listing on NASDAQ, subject to official notice of issuance, (v) the Registration Statement on Form S-4 necessary to consummate the TKB Business Combination having become effective, (vi) absence of any pending action by any governmental entity that challenges or seeks to enjoin the TKB Business Combination or the other transactions contemplated by the TKB Business Combination Agreement, (vii) subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of the parties contained in the TKB Business Combination Agreement and the compliance by each party with the covenants contained therein, (viii) TKB's sponsor ("TKB Sponsor") having delivered to Wejo a counterpart of a registration rights agreement duly executed by the TKB Sponsor, the TKB Sponsor's members and its or their transferees and the two individuals designated in writing by the Sponsor Director Nominees, (ix) Holdco having delivered to the TKB Sponsor a counterpart of the Registration Rights Agreement duly executed by Holdco; (x) no material adverse effect on Wejo or TKB, (xi) there being, at the closing of the TKB Business Combination Agreement, available cash on hand at Wejo or available cash to be borrowed pursuant to binding contractual commitments from third parties, in such amounts that, together with (A) the net proceeds of amounts in the TKB trust account (net of redemptions and transaction expenses), (B) any irrevocable and binding financing commitments entered into pursuant to the TKB Business Combination Agreement, and (C) any non-binding financing commitments or other sources of income that in the reasonable determination of Wejo or TKB, as applicable, are reasonably expected to be available following the closing, it will be sufficient to fund ordinary course working capital and other general corporate purposes of Wejo in accordance with its mid-term business plan, (xii) Wejo having complied in all material respects with its obligations under the TKB Business Combination Agreement with respect to the issues specifically identified therein, and (xiii) the closing of the transaction having occurred by August 31, 2023.
The Company does not anticipate that the parties can close the TKB Business Combination by the TKB Consummation Deadline. As such, TKB must receive approval from its shareholders of an additional extension of such deadline. This condition to the closing the TKB Business Combination and certain others discussed above are beyond the control of the Company. The Company cannot predict whether and when these other conditions will be satisfied. The Company cannot provide any assurance that the TKB Business Combination will be completed or that there will not be a delay in the completion of the TKB Business Combination. If the TKB Business Combination is not completed as a result of failure by the parties to satisfy any conditions precedent, the Company's business may each be materially and adversely affected.
Corporate Activity and Growth - Risk 8
We anticipate growth in the connected vehicle data market; if we do not successfully match our growth to the growth of the connected vehicle data market, our business could be materially and adversely affected.Our strategy for investing in new products and services supports our expectations of demand for new products and services in the connected vehicle data market and for growth of that market in new regions and countries. For example, we plan to offer services that provide data processing capabilities to OEMs, Tier 1s, Fleet providers, and automotive ecosystem partners and that increase insights and visualizations from connected vehicle data. We also plan to sell current and future services in new countries where we do not already have customers. If our investments do not create successful new products and services that support growth of the business, or if our strategy for growth does not match demand for growing products and services in the connected vehicle data market, our business performance could be adversely impacted.
We cannot guarantee the success of our growth strategy or that our investments in growth of the business will lead to profitable returns. We may incur unexpected costs in developing technologies and services, we may generate insufficient capital from operations or elsewhere to fund growth, we may incur sales expenses that we did not plan for or anticipate, we may incorrectly identify areas of connected vehicle data market growth and the connected vehicle data market could grow more slowly than we anticipate or not at all. Any of these factors could impair our ability to grow the business as we plan and could materially and adversely impact our financial performance and profitability.
Tech & Innovation
Total Risks: 11/60 (18%)Below Sector Average
Innovation / R&D3 | 5.0%
Innovation / R&D - Risk 1
Growing our business requires us to continue investing in technology, resources, and new business capabilities; these investments may contribute to losses, and we cannot guarantee that any will be successful or contribute to profitability.Innovation / R&D - Risk 2
If we do not develop enhancements to our services and introduce new services that achieve market acceptance, our growth, business, results of operations and financial condition could be adversely affected.Our ability to attract new customers for our connected vehicle data products and services and increase revenue from existing customers depends in part on our ability to enhance and improve our existing services, increase adoption and usage of our services, and introduce new services. The success of any enhancements or new services depends on several factors, including timely completion, adequate quality testing, actual performance quality, market accepted pricing levels and overall market acceptance.
Enhancements, such as additional technology features, and new connected vehicle data products and services that we develop may not be developed or introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties with our platform or other services or may not achieve the broad market acceptance necessary to generate significant revenue. Furthermore, our ability to increase the usage of our services depends, in part, on the development of new uses for our services, which may be outside of our control. Even if our new and improved products and services are successful, they may not operate without excessive and unforeseen costs, or without technical challenges that impair broader sales. As the growth of the connected vehicle data market involves new products and services that customers have not previously had an opportunity to acquire, our success depends upon whether, the extent that, and the timing of when, customers accept and purchase the new products and services. Since we cannot control any of these factors, we cannot guarantee that improved and new products and services will not contribute to losses or will operate or sustain profitable operation. If in reaching customer acceptance and adoption of improved and new products and services we need to increase sales expenses beyond what we anticipate, our ability to limit losses and reach and maintain profitability for those products and services may be adversely impaired.
Innovation / R&D - Risk 3
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences, our products may become less competitive.The market for products and services based upon connected vehicle data is in its early stages and evolving. It is subject to rapid technological change, evolving industry standards, changing regulations, as well as changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop new services that satisfy our customers and provide enhancements and new features for our existing services that keep pace with rapid technological and industry change, our business, results of operations and financial condition could be adversely affected. If new technologies emerge that can deliver competitive services at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete effectively.
Our platform must integrate with a variety of network, hardware, mobile and software platforms and technologies, and we may need to continuously modify and enhance our services and platform to adapt to changes and innovation in these technologies. If OEMs and customers adopt new software platforms or infrastructure, we may be required to develop new or enhanced versions of our services to work with those new platforms or infrastructure. This development effort may require significant resources, which would adversely affect our business, results of operations, and financial condition. Any failure of our services and platform to operate effectively with evolving or new platforms and technologies could reduce the demand for our services. If we are unable to respond to these changes in a cost-effective manner, our services may become less marketable and less competitive or obsolete, and our business, results of operations, and financial condition could be adversely affected.
Trade Secrets3 | 5.0%
Trade Secrets - Risk 1
We may not be able to adequately protect or enforce our intellectual property rights or prevent unauthorized parties from copying or reverse engineering our solutions economically or at all, which could diminish our brand and other intangible assets.Trade Secrets - Risk 2
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.We rely upon proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright, trademark, trade dress or service mark protection, or that we believe are best protected by means that do not require public disclosure.
We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our current or future partners and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford limited or no protection to our trade secrets.
We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or that these measures will provide adequate protection. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights.
Trade Secrets - Risk 3
Third-party indemnity claims, including that we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses, which, if successful, could restrict us from using and providing our technologies and solutions to our customers or cause us to pay significant damages.Although we have filed patent applications related to our products, a number of companies, both within and outside of the vehicle data service industry, hold other patents covering systems and methods for processing vehicle data. In addition to these patents, participants in this industry typically also protect their technology, especially software, through copyrights and trade secrets. As a result, there may be frequent litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. We may in the future receive inquiries from other intellectual property holders and may become subject to claims that we infringe their intellectual property rights, particularly as we expand our presence in the market. In addition, third parties may claim that the names and branding of our products infringe their trademark rights in certain countries or territories. If such a claim were to prevail, we may have to change the names and branding of our products in the affected territories and we could incur other costs, including liability for damages.
We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify and hold harmless our customers, suppliers, and partners from damages and costs which may arise from the infringement by our products of third-party patents or other intellectual property rights, damages caused by us to property or persons, breach by us of confidentiality obligations, other liabilities relating to or arising from the use of our network and products, other liabilities relating to or arising from our use of networks and products of others, or other acts or omissions. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys' fees. Our insurance may not cover all intellectual property infringement and other indemnity claims. A claim that our products infringe a third party's intellectual property rights, even if without merit, could adversely affect our relationships with our customers, may deter future customers from purchasing our products and could expose us to costly litigation and settlement expenses. Even if we are not a party to any litigation between a customer and a third party relating to infringement by our products, an adverse outcome in any such litigation could make it more difficult for us to defend our products against intellectual property infringement claims in any subsequent litigation in which we are a named party. Any of these results could adversely affect our brand and operating results.
Our defense of intellectual property rights claims brought against us or our customers, suppliers and partners, with or without merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention, and force us to acquire intellectual property rights or licenses, which may involve substantial royalty or other payments and may not be available on acceptable terms or at all. Further, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial license fees or other damages or obtain an injunction forcing us to stop using technology found to be in violation of the third party's rights or otherwise. An adverse determination also could invalidate our intellectual property rights and adversely affect our ability to offer our products to our customers and may require that we procure or develop substitute products that do not infringe, which could require significant effort and expense. Any of these events could adversely affect our business, operating results, financial condition and prospects.
Cyber Security1 | 1.7%
Cyber Security - Risk 1
Breaches of our networks or systems, or those of our data providers or partners, could degrade our ability to conduct business, compromise the integrity of our products, platform and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.Technology4 | 6.7%
Technology - Risk 1
Any disruption of service at our cloud service providers that host our platform or other services or facilities that Wejo relies on could harm our business.Technology - Risk 2
Our products rely on live data streams from OEMs on reasonable economic terms and with reasonable permissions; if we are unable to maintain sufficient contracts with such partners for data streams at reasonable prices, our ability to offer certain products and services or the value of our data products and services may be impaired.Our products and services depend upon the availability of connected vehicle data. We obtain this data through our relationships with OEMs on reasonable economic terms. Some or all of the OEMs from whom we obtain connected vehicle data may decide to limit or withdraw the availability of their connected vehicle data if we do not meet their business goals for connected vehicle data, sales or revenue targets, or our obligations under our contracts. Some of our products require a minimum volume of connected vehicle data in a given market to provide meaningful value to customers. In addition, if the economic terms of our agreements with OEMs or such sources do not allow us to cover costs of our business as we anticipate, our revenue will be negatively impacted. We cannot offer our key products and services in a region or market where we do not have contracts to receive connected vehicle data. If we are unable to maintain sufficient contracts with OEMs for data streams that adhere to our quality-control standards and service-level agreements or obtain acceptable alternative data for the impacted market, we may be unable to offer certain data products and services and the value of those we offer may be limited. As a result, our business, results of operations and financial condition could be adversely affected.
Technology - Risk 3
Some of our applications utilize open-source software, and any failure to comply with the terms of one or more of these open-source licenses could negatively affect our business.Our platform incorporates open-source software, and we expect to continue to incorporate open-source software in our platform in the future. Few of the licenses applicable to open-source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products and platform.
Moreover, although we have implemented policies to regulate the use and incorporation of open-source software into our products and platform, we cannot be certain that we have not incorporated open-source software in our products or platform in a manner that is inconsistent with such policies. If we fail to comply with open-source licenses, we may be subject to certain requirements, including requirements that we offer our products that incorporate the open-source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open-source software and that we license such modifications or derivative works under the terms of applicable open-source licenses. If an author or other third party that distributes such open-source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating revenue from customers using products that contained the open-source software and required to comply with onerous conditions or restrictions on these products. In any of these events, we and our customers could be required to seek licenses from third parties to continue offering our products and platform and to re-engineer our products or platform or discontinue offering our products to customers in the event re-engineering cannot be accomplished on a timely basis. Any of the foregoing could require us to devote additional technology and development resources to re-engineer our products or platform, which could result in customer dissatisfaction and may adversely affect our business, results of operations and financial condition.
Technology - Risk 4
Larger and more well-funded companies with access to significant resources, large amounts of data or data collection methods, and sophisticated technologies may shift their business model to become competitive with us.In addition, many of our potential competitors could have competitive advantages, such as greater name recognition, longer operating histories, significant install bases, broader geographic scope, and larger sales and marketing budgets and resources. Many of our potential competitors may have established relationships with independent software vendors, partners, and customers, greater customer experience resources, greater resources to make acquisitions, lower labor and development costs, larger and more mature intellectual property portfolios, and substantially greater financial, technical, and other resources. New competitors or alliances among competitors may emerge and rapidly acquire significant market share due to these or other factors.
Mergers and acquisitions in the technology industry increase the likelihood that our competitors in the future will be larger and have more resources. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. Companies resulting from these possible consolidations may create more compelling product offerings and be able to offer more attractive pricing options, making it more difficult for us to compete effectively.
Legal & Regulatory
Total Risks: 7/60 (12%)Below Sector Average
Litigation & Legal Liabilities2 | 3.3%
Litigation & Legal Liabilities - Risk 1
Legal proceedings in connection with the TKB Business Combination, the outcomes of which are uncertain, could delay or prevent the completion of the TKB Business Combination.Litigation & Legal Liabilities - Risk 2
You may have difficulty enforcing judgments of U.S. courts against us in Bermuda courts.Wejo is organized as an exempted company pursuant to the laws of Bermuda. In addition, a number of our directors and executive officers are not residents of the United States, and a substantial portion of our assets and their assets are or may be located in jurisdictions outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon those persons or us or to recover against them or us on judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.
We have been advised that there is no treaty in force between the United States and Bermuda providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As a result, whether a U.S. judgment would be enforceable in Bermuda against us or our directors and officers depend on whether the U.S. court that entered the judgment is recognized by the Bermuda court as having jurisdiction over us or our directors and officers, as determined by reference to Bermuda conflict of law rules. A judgment debt from a U.S. court that is final and for a sum certain based on U.S. federal securities laws will not be automatically enforceable in Bermuda unless the judgment debtor had submitted to the jurisdiction of the U.S. court, and the issue of submission and jurisdiction is a matter of Bermuda (not U.S.) law.
In addition, and irrespective of jurisdictional issues, the Bermuda courts will not enforce a U.S. federal securities law that is either penal or contrary to Bermuda public policy. We have been advised that an action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in our sovereign capacity, will not be entertained by a Bermuda court. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, would not be available under Bermuda law or enforceable in a Bermuda court, as they would be contrary to Bermuda public policy. Further, no claim may be brought in Bermuda against us or our directors and officers in the first instance for violation of U.S. federal securities laws because these laws have no extraterritorial jurisdiction under Bermuda law and do not have force of law in Bermuda. A Bermuda court may, however, impose civil liability on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law.
Taxation & Government Incentives4 | 6.7%
Taxation & Government Incentives - Risk 1
Changes in tax law, changes in our effective tax rate or exposure to additional tax liabilities could affect our profitability and financial condition.Taxation & Government Incentives - Risk 2
If the Company were a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. holders of our common shares could be subject to adverse U.S. federal income tax consequences.If the Company is or becomes a "passive foreign investment company" ("PFIC"), within the meaning of Section 1297 of the Code for any taxable year during which a U.S. holder (as defined in "Material United States Federal Income Tax Consequences to U.S. Holders") holds our common shares, certain adverse U.S. federal income tax consequences may apply to such U.S. holder. The Company does not expect to be a PFIC for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, PFIC status depends on the composition of a company's income and assets and the fair market value of its assets from time to time, as well as on the application of complex statutory and regulatory rules that are subject to potentially varying or changing interpretations. Accordingly, there can be no assurance that the Company will not be treated as a PFIC for any taxable year.
If the Company were treated as a PFIC, a U.S. holder of our common shares may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred, and additional reporting requirements. U.S. holders of our common shares should consult with their tax advisor regarding the potential application of these rules.
Taxation & Government Incentives - Risk 3
The impact of the OECD's efforts to eliminate harmful tax practices is uncertain and could adversely affect our tax status in Bermuda or other jurisdictions.The Organization for Economic Cooperation and Development (the "OECD") has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. According to the OECD, Bermuda is a jurisdiction that has substantially implemented the internationally agreed tax standard and as such is listed on the OECD "whitelist".
However, we are not able to predict whether any changes will be made to this classification or whether any such changes will subject us to additional taxes.
In addition, the OECD has continued its efforts regarding its Base Erosion and Profit Shifting reports and related attempts to coordinate multilateral action on international tax rules. These efforts included the December 2021 release of model rules which include a 15% global minimum tax regime. If these model rules are partially or fully implemented globally, we expect an increase to its annual global income tax expense and potentially an increase in our annual global income tax payments.
Related to these efforts, Bermuda implemented the Economic Substance Act 2018 which requires affected Bermuda registered companies to maintain a substantial economic presence in Bermuda. This legislation and/or other OECD efforts could require us to incur substantial additional costs to maintain compliance, result in the imposition of significant penalties, create additional tax liabilities globally, and possibly require us to re-domicile itself or any Bermuda subsidiary to a jurisdiction with higher tax rates.
Our business and results of operations could be significantly and negatively affected if we were to become subject to taxation in Bermuda or to other unanticipated tax liabilities. If OECD's proposed global minimal tax rate of 15% is implemented and an accounting profit is attained in Bermuda, there could be a significant negative impact to Wejo's overall business operations and global tax obligations.
Taxation & Government Incentives - Risk 4
Wejo may become subject to taxation in Bermuda after March 31, 2035, which could have a significant and negative effect on our business and results of operations.Currently there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our common shares. Wejo has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax will not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debt or other obligations. Given the limited duration of any assurance by the Minister of Finance, Wejo can't be certain that we will not be subject to any Bermuda taxes after March 31, 2035. Our business and results of operations could be significantly and negatively affected if we were to become subject to taxation in Bermuda.
Environmental / Social1 | 1.7%
Environmental / Social - Risk 1
Our current and planned future business operations are and will be governed by various U.S. and international laws and regulations relating to privacy, data protection, consumer protection, and cybersecurity; if we fail to comply with any of these governing laws and regulations, the impact could harm our business, results of operations and financial condition.Macro & Political
Total Risks: 6/60 (10%)Below Sector Average
Economy & Political Environment1 | 1.7%
Economy & Political Environment - Risk 1
Unfavorable conditions in our industry, the automotive industry, the global economy, or reductions in spending on technology could adversely affect our business, results of operations and financial condition.International Operations1 | 1.7%
International Operations - Risk 1
Because we operate globally, we are susceptible to numerous international business risks that could increase our costs, disrupt the supply chain, and/or have a material adverse effect on our business, liquidity, financial condition and results of operations.Natural and Human Disruptions3 | 5.0%
Natural and Human Disruptions - Risk 1
Our business and operations are subject to risks related to climate change.Natural and Human Disruptions - Risk 2
Any disruption of services that we operate or that we depend upon from OEMs could harm our business and risk losing customers.Our services in part rely on live data streams both in the data that we receive from our OEM data suppliers and in many of the data products that we provide to our customers. Our products that rely on live stream connected vehicle data depend upon the continued operation and performance of OEM systems at levels meeting our minimum requirements. If one or more of these OEM's systems do not continue to operate or do not operate at sufficient performance levels, whether through technical limitations or decisions of the OEM to prioritize other aspects of its business, then our products may have reduced marketability and value, which will reduce our ability to obtain revenue and impair the performance of the business. Similarly, if we do not maintain or operate our systems at sufficient performance levels, our products may have reduced marketability and value, which will reduce our ability to obtain revenue and impair the performance of the business. Either of these situations could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. We may also incur significant costs reprogramming, patching, and/or re-architecting our solutions for deployment if we need to recover from reduced or failed performance of our live stream systems, which would adversely affect our business, operating results, and financial condition.
Natural and Human Disruptions - Risk 3
Public health crises, such as the COVID-19 pandemic, could materially adversely affect our business, financial condition and results of operations.We are subject to risks related to public health crises, such as the COVID-19 pandemic, which had an adverse effect on our operating results in 2020 and 2021. Our business is based on our ability to provide products and services to customers throughout the United States and around the world, and the ability of those customers to use and pay for those products and services for their businesses and in their daily lives. As a result, our business, financial condition and results of operations could be materially adversely affected by a public health crisis that significantly impacts the way customers use and are able to pay for our products and services, the way our employees are able to provide services to our customers, and the ways that our partners and suppliers are able to provide products and services to us. For example, public and private sector policies and initiatives to reduce the transmission of COVID-19 and initiatives Wejo took in response to the health crisis to promote the health and safety of our employees and provide services to our customers, along with the related global slowdown in economic activity, resulted in decreased revenues and increased costs during 2020. In addition, such a crisis could significantly increase the probability or consequences of the risks our business faces in ordinary circumstances, such as risks associated with our supplier and vendor relationships, risks of an economic slowdown, regulatory risks, and the costs and availability of financing.
The extent to which COVID-19 or other widespread outbreaks of infectious disease impact our business going forward will depend on factors such as the duration and scope of infections; governmental, business, and individuals' actions in response to the health crisis; and the impact on economic activity including the possibility of financial market instability or recession. How a resurgence of COVID-19 or other potential global pandemics will affect us will depend on future developments that are highly uncertain and cannot be accurately predicted.
To the extent that a public health crisis, including any continuing impact from COVID-19 pandemic, adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section, including, but not limited to those relating to cyber-attacks and security vulnerabilities, interruptions or delays due to third-parties, or our ability to raise additional capital or generate sufficient cash flows necessary to fulfill our obligations under our existing indebtedness or to expand our operations.
Capital Markets1 | 1.7%
Capital Markets - Risk 1
Our business may be adversely impacted by changes in currency exchange rates.Ability to Sell
Total Risks: 5/60 (8%)Below Sector Average
Competition1 | 1.7%
Competition - Risk 1
The market in which we participate is intensely competitive, and if we do not compete effectively, our business, results of operations and financial condition could be harmed.Sales & Marketing4 | 6.7%
Sales & Marketing - Risk 1
Any failure to offer high quality data user support may adversely affect our relationships with our customers and prospective customers, and adversely affect our business, results of operations and financial condition.Sales & Marketing - Risk 2
As a pioneer in the connected vehicle data business, we offer new products and services and depend upon the willingness of our automotive data providers to provide data for these new products and services.The market for connected vehicle data products and services is new, as are many of the products and services that we develop, plan to develop, and offer. Our current financial plans depend largely upon the introduction of new products and services and the desire of our automotive data providers to provide data for use in these new products and services. Our success with our data providers with our current products and services does not guarantee that our data providers will support all our planned future products and services. From time to time, data providers have and may continue to extend time considering support for new products and services. In such cases, we may be slower than we planned, or even prevented from, introducing the impacted new products and services. Potential customers impacted by these delays may lose interest in the products and services or seek alternatives to our products and services, and if either of these occurs, our reputation with our customers or in the market may suffer. If we are unable to obtain connected vehicle data for our planned products and services, our business, results of operations, and financial condition could be adversely affected.
Sales & Marketing - Risk 3
We rely, in part, on relationships with other businesses to demonstrate the value of our connected vehicle data products and services to end users of the data. This approach may impact our ability to meet financial objectives and to scale to a larger market.For some customers, we deliver connected vehicle data products and services by entering into contracts with other entities that offer capabilities that we do not yet offer or did not plan to offer. This approach has the potential of adding unpredictable costs and complexities to the delivery of our products and services, as well as reducing our potential revenue. For example, we may incur expenses building a connection to another company's system, or the IT and data security profiles of the other company may not meet our technological and security standards and may take longer to integrate and remediate than planned. In addition, the end customer may not be willing to pay a higher price because we and the other business are both involved in processing the data. As a result, our share of revenue from the data may be adversely impacted. Our ability to meet our anticipated market growth depends upon our ability to manage these relationships and to grow our capabilities to reduce dependence upon these relationships. If we do not successfully manage these relationships and adapt our products and services to address these challenges, we may not be able to grow our revenue or our business in the connected vehicle data market as we anticipate, and our business, results of operations, and financial condition could be adversely affected.
Sales & Marketing - Risk 4
Our business depends on maintaining and growing our customer base; if we fail to maintain and grow our customer base, our business, results of operations and financial condition could be adversely affected.We are pioneering the connected vehicle data business, for which we expect a growing customer base. Our plan for growing revenue depends upon maintaining customers and obtaining new customers. Current and potential customers may not value or may be slow to value the benefit of our products and services, may not agree that our products and services are as valuable as we anticipate, may find alternative sources of information to replace the products and services that we offer and plan to offer, may not be satisfied with our delivery of our products and services, or may decide that our products and services are not the products and services that they need. We cannot predict if and when customers will decide to purchase or continue purchasing our products and services. In addition, acceptance by our current customers does not guarantee that future customers will desire, accept, or be able to receive some or all our products and services from our platform without the need for us to increase expenses beyond levels we anticipate in order to adapt our platform to meet future customers' needs. When customers do purchase our products and services, we cannot predict the amount of data that customers will purchase. If for any of these reasons or others, we do not maintain and grow our customer base as we anticipate, then our business, results of operations, and financial condition could be adversely affected.
Production
Total Risks: 3/60 (5%)Below Sector Average
Employment / Personnel2 | 3.3%
Employment / Personnel - Risk 1
We are highly dependent on the services of our CEO and founder, Richard Barlow.Employment / Personnel - Risk 2
If we are unable to hire, retain and motivate key executives and other qualified employees, our business will suffer.Our future success depends, in part, on our ability to continue to attract and retain key executives and highly skilled employees. Our executive team, in particular, has played and continues to play a key role in the development of our business. We believe that there is, and will continue to be, intense competition for highly skilled executive, management, technical, sales and other employees with experience in our industry and where we maintain offices. We must provide competitive compensation packages and a high-quality work environment to hire, retain and motivate such employees. If we are unable to retain and motivate our existing employees and attract qualified employees to fill key positions, we may be unable to manage our business effectively, including the development, marketing, and sale of our products, which could adversely affect our business, results of operations and financial condition. To the extent we hire employees from competitors, we also may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
Supply Chain1 | 1.7%
Supply Chain - Risk 1
If we are unable to expand our relationships with OEMs and add new OEMs as data providers, our business, results of operations, and financial condition could be adversely affected.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.